Yahoo! Store Pricing Change Analysis

Editor: This is a two-part article. First, I examine some scenarios to see what effect the price changes will have. Then Rob Snell, as a person working closely with many Yahoo! Store merchants, gives us his take on the likely effect of these changes on these storeowners.

Analysis of Yahoo! Price Changes

by Dr. Ralph F. Wilson, E-Commerce Consultant

Beginning October 1, 2001, Yahoo! Store instituted some price changes. These affect many thousands of Yahoo! merchants and others considering Yahoo! Stores for their new e-commerce site.

New Pricing Schedule

Yahoo! Store's new price schedule compared with the old pricing follows:

A 30-Day Cookie

To determine traffic from the Yahoo! Network, when a visitor lands on a merchant's Yahoo! Store URL, the referring URL for that visitor (the URL of the webpage that had the link that brought them to the merchant's store) is recorded and stored in a cookie on the visitor's browser for 30 days before expiring. Any purchase by that visitor from that merchant's store that takes place within 30 days is assessed a 3.5% revenue share.

Traffic from any yahoo.com URL is counted as Y! Network traffic, with two major exceptions. (1) Any mail.yahoo.com URLs do not apply. So if a merchant sends out an e-mail promoting the store, a visitor who reads your message on Yahoo! Mail won't be counted. (2) Any store.yahoo.com URLs do not apply. Thus, if someone comes from one webpage on your Yahoo! Store to another, no cookie is generated, and these visitors aren't counted as Y! Network traffic. For detailed information from Yahoo! on how this works, see http://help.yahoo.com/help/us/store/fees

Some What-if Cost Scenarios

To see how this might affect merchants, I tried some different scenarios with the old and new pricing. I considered six monthly store sales volumes ($1000, $5000, $10K, $30K, $50K, and $100K ) and looked at the net effect on stores with various numbers of products (10, 150, and 1000 products). Then I calculated the percentage change in pricing between the old and new pricing for two scenarios -- 20% and 50% of sales from Yahoo! Network traffic. Here's the raw data, with percentage decreases in red and percentage increases in boldface type.

Those least likely to be able to handle higher prices (merchants with low revenues) saw a significant decrease in price from 25% to 75% or more.

Small stores (10 products) with $5,000 or greater in sales experience will see substantial price increases, mainly because they started with a low basic rate ($100 per month). Also, under the new pricing structure, revenues from Yahoo! Network sites are assessed at 3.5% across the board. Previously, they were assessed only for Yahoo! Shopping at 2.0%, and then only on sales over $5,000 from that source.

Generally, medium and larger stores from $5,000 to $10,000 will see some price decrease. Stores in the $30,000 revenue range all saw substantial price increases.

For stores with low sales volumes, the "rent" on their Yahoo! store ranged from 7% to 17% of the total sales revenue -- too expensive. But for stores of all sizes with a sales volume of $5,000 or more the "rent" settled down to the 2% range.

It remains to be seen, however, whether the decreased margins caused by increased revenue share on sales through the Yahoo! Network will allow stores to compete effectively on price (3.5% new vs. "2% over $5,000" old pricing). Notice that the new revenue share applies not only to sales resulting from Yahoo! Shopping, but also from the Yahoo! Directory, the largest source of traffic for a number of online businesses. Yes, Yahoo! is bringing in the sales and has some right to cash in on the revenues, but this may put Yahoo! Stores at a disadvantage with non-affiliate stores that get a lot of sales from Yahoo! Directory traffic.

Merchant Account

Yahoo! Store merchants with US bank accounts have the option of obtaining a merchant account through Paymentech at very favorable rates: no application fee, 2.32% discount rate, and 20¢ transaction fee, with a six month minimum contract. This is even lower than the CardService International merchant account through Bigstep.com.

Likely Effects of the Yahoo! Store Price Change

by Rob Snell, Snell Brothers Web Development (www.robsnell.com)

In addition to Yahoo! Shopping (shopping.yahoo.com), I believe search results from the directory of Yahoo! Stores (stores.yahoo.com), the Yahoo! Directory (www.yahoo.com), and search results from google.yahoo.com count under the new definition of Y! Network sales. These are tracked with a 30-day cookie.

Defining Traffic from the Y! Network

Based on the 100+ Yahoo Stores I've designed or worked with, close to 40% of traffic comes from Y! Network sources. Without the 30-day cookie that Yahoo! is now using, most folks got between 20% and 30% of their trackable traffic from yahoo.com, stores.Yahoo.com, shopping.yahoo.com, and google.yahoo.com.

Since only half of most stores' traffic has been trackable until this point, I think the 30-day cookie will have a much greater impact than most storeowners realize as Y! Network-generated traffic returns through bookmarks, e-mail marketing, and just typing in the URL. Also, I think the monthly Y! Network charge will have a greater than-expected impact, especially for my clients with very-targeted Yahoo! Business Express Directory listings. Some clients have estimated 200% to 300% increases in their store rents. On the other hand, my clients can open new stores and add additional thousands of products at a much lower cost.

Yahoo! Store Showcase Program Impact

Fortunately, most of the better stores have been invited to participate in the new Yahoo! Store Showcase program that will hopefully increase sales to make up for the new fees. I believe the threshold to be included in Yahoo! Store Showcase was $10K sales a month, a 5-star customer service rating, and stores had to have been with Yahoo! Store for over a year. Right now those Showcase stores get a 5-Star icon, a Yahoo! Store icon by their name in the Directory listings, and a sidebar on the right hand side inside the directory.

So far, we haven't really seen an increase in traffic from Showcase listings with our stores or with client stores. I've read that 80% of Yahoo! surfers use only the search part of Yahoo!, and not the hierarchical directory structure, so the Showcase is really just a little better than the Sponsored listings. I own three stores with sponsored listings, but it only costs $25 a month for those categories because they get so little traffic. Hopefully, Yahoo! will add the Showcase icons to the "search" results. Some of my clients have seen huge sales spikes from their products being incorporated into content from various other Yahoo! properties like sports.yahoo.com.

An Exodus from Yahoo! Stores?

Almost half of the folks I've worked with have asked me to explore alternatives to Yahoo! Store, even though I develop and market solely for the Yahoo! Store platform. Many folks are moving their Yahoo.com directory listed domains back to a non-Yahoo! platform and then sending the traffic to their Yahoo! Store to avoid the 3.5% Y! Network cookie.

It's certainly an interesting time to be a Yahoo! Store developer. Unless Yahoo! drives significantly more traffic for the new 4% fee merchants are paying (0.5% transaction fee plus 3.5% revenue share on Y! Network traffic), I believe many of the $10K a month and up stores will either develop a second store on another platform or even move from Yahoo! after the Christmas rush is over.

Rob Snell has developed Yahoo! Stores for 100+ clients (www.robsnell.com). Phone (800) 332-7601.